Commercial Property Execs' Mood Brightens, Yet Outlook Clouded by Economic,
Fiscal Uncertainties, Interest Rate Risks
Q1 Survey Shows Continued Bifurcation Between "Gateway," Non-Gateway Markets
PR Newswire
WASHINGTON, Feb. 21, 2013
WASHINGTON, Feb. 21, 2013 /PRNewswire/ --Senior commercial real estate
executives are increasingly positive about current and future market
conditions — particularly as they relate to top-quality assets in top markets
— yet they remain concerned about the slow pace of job creation, sovereign
budget deficits (including U.S. debt challenges), and interest rate risks,
according to The Real Estate's Roundtable's Q1 2013 Sentiment Survey.
Reflecting the industry's gradual healing, 8 percent more survey participants
rated current conditions as "somewhat better" than those of a year ago
(compared to the Q4 2012 survey), while 16 percent more respondents projected
"somewhat" to "much" better conditions one year from now. Yet, the recovery
remains "bifurcated" geographically and in terms of asset quality — with
valuations, equity, and capital availability recovering much more quickly in
the 24/7 "gateway" markets (particularly for "Class A" real estate), as
compared to B- or C-rated assets / "commodity real estate" in secondary or
tertiary markets.
Although all three indices rose in the current survey, and although the survey
trajectory remains positive, the index is still not back to where it was two
years ago — before the 2011 debt ceiling crisis and S&P's unprecedented
downgrade of the U.S. credit rating.
Whereas the "Overall Index" hit a high mark of 77 during the first half of
2011, today it stands at 69 (up from 65 in Q4 2012). The "Current Conditions"
index, which rose slightly in the latest survey (from 68 to 70), also remains
somewhat stronger than the "Future Conditions" index, which increased from 62
to 67 between Q4 2012 and Q1 2013.
"As today's survey shows, commercial real estate is on the mend, but it
remains a fragile recovery very specific to property type and individual
markets. It also is clearly dependent on what happens with the broader
economy, policy decisions being made — or not made — in Washington, and how
policymakers ultimately unwind what has been a very long stretch of
accommodative monetary policy," said Roundtable Chairman Robert S. Taubman,
who is chairman, president and CEO of Michigan-based Taubman Centers, Inc.,
which owns a portfolio of regional and super regional malls in major U.S.
markets and Asia.
Numerous survey participants cited concerns about potential interest rate
increases, which would lead to higher mortgage payments and lower asset values
— a combination that could undermine the market's recent progress. Renewed
pressure on property values would also have negative implications for local
government tax revenues, bank balance sheets (particularly smaller community
banks), and retirement accounts held with U.S. pension and 401(k) plans.
"The latest survey data underscore the need to accelerate U.S. job creation —
still the most important metric driving property fundamentals — and the need
for appropriate flows of capital and credit for commercial real estate
transactions," said Roundtable President and CEO Jeffrey DeBoer.
"To get businesses off the sidelines — expanding their plants and payrolls —
there must be more predictability, certainty and balance in public policy
going forward, whether the issue is promoting sustainable, secure energy
sources; simplifying and restructuring our tax code; implementing financial
regulatory safeguards under Dodd-Frank; or addressing the nation's immigration
problems," he added.
The quarterly Sentiment Survey, administered by FPL Advisory Group, seeks to
capture feedback from a broad range of real estate industry segments, asset
classes, ownership vehicles and capital structures, including owners and
operators, asset managers, and financial services firms [full survey report
available at www.rer.org].
SOURCE The Real Estate Roundtable
Website: http://www.rer.org
Contact: Xenia ("Ksen-ya") Jowyk: xjowyk@rer.org or Scott Sherwood:
sherwood@rer.org, +1-202- 639-8400